9/30/2008 @ 2:08PM

RealNetworks Picks A Piracy Fight

Streaming video and direct downloads may mean that the DVD is headed the way of VHS tapes. But thanks to RealNetworks, it’s not going out without a copyright fight.

Tuesday,
RealNetworks
, the maker of RealPlayer software, began selling RealDVD, a $50 program that allows users to “rip” DVD files from discs and store them in an iTunes-like library. The program rankles movie studios bent on preventing users from copying rented DVDs or ripping their friends’ collections. But Real argues its software doesn’t break the encryption on video files and is therefore legal. (See “Video Piracy–Without the Piracy.”)

Legal or not, the first lawsuit has already arrived–courtesy of RealNetworks itself. Tuesday morning, the company sued a group of media companies, including
Disney
,
Sony
, Paramount, NBC,
Viacom
, Warner Bros. and Twentieth Century Fox, claiming the media companies had sent a collective letter threatening to sue for copyright violations.

RealNetworks’ federal lawsuit, filed in the northern district of California, aims to preempt copyright suits from the studios and establish that RealDVD complies with the license agreement Real signed with the DVD Copy Control Association, (DVD CCA) a consortium of movie companies that’s named as one of the defendants in the lawsuit.

The Motion Picture Association confirmed in a statement that movie studios plan to file a lawsuit against RealNetworks later Tuesday, as well as a restraining order preventing the distribution of RealDVD. The statement argues that RealDVD circumvents copyright restrictions and that RealNetworks knows users might use the software to “rent, rip and return” movies from services such as
Blockbuster
or
Netflix
.

“The RealDVD software would enable massive theft of creative content that would have a direct, negative impact on the delivery of movies, television shows and other entertainment to consumers,” the statement reads.

DVD sales still account for a large (if shrinking) chunk of movie studios’ revenues. According the The Digital Entertainment Group, consumers spent $16 billion buying DVDs last year, down from $16.6 billion in 2006. The DVD rental business earned another $7.5 billion in 2007.

But even if RealNetworks threatens those sales, it may have a valid defense of its controversial software, as former
Napster
attorney Laurence Pulgram told Forbes.com earlier this month. Because RealDVD copies video files with their encryption intact and plays them with the same software license a hardware DVD player uses, the program doesn’t violate the Digital Millennium Copyright Act’s prohibition on circumventing copyright protections, Pulgram argued.

RealDVD also wraps its ripped DVD files in another form of so-called “digital rights management” software that prevents the file from being copied to more than five computers. That, the company says, ensures DVD files won’t end up being pirated on peer-to-peer file-sharing networks.

“We made real efforts to try and do this in a way that creates a good consumer experience but that the movie studios could get behind,” says RealNetworks’ Kimball. “At the end of the day, we couldn’t get there. [The studios] are just religiously opposed to our product.”

Real has at least one precedent on its side: In 2005, the DVD CCA sued Sunnyvale, Calif.-based Kaleidescape, a company that sells a “movie jukebox” that also lets users copy DVDs without breaking encryption, albeit with a device that costs more than $14,000. In that case, the judge ruled Kaleidescape hadn’t violated the DVD CCA license, even though one provision of the license specified a physical disc had to be present to legally play a film. The decision is under appeal.

“What [the studios] really want is a second bite at the apple,” argues Kimball. “They lost one case and they want to try again in front of a different court.”

In fact, Real’s case and Kaleidescape’s have distinct differences. Kaleidescape’s case was filed in state court and focuses on the terms of the DVD CCA contract–not copyright law. The Real case will likely go further, testing the degree to which users can duplicate copyrighted media for personal use, even when the same program can be used with illegal intent.

“The studios don’t believe users have fair use right to back up their video collection,” says Kimball. “They don’t think users should be able to do anything with a DVD other than put it in a machine and play it.”